SA’s ban on spectrum trading makes no sense

Spectrum is the lifeblood of the telecommunications industry. The more “high-demand” spectrum a service provider has, the higher the capacity and better the quality of the service it can provide.

Freely tradeable spectrum would lead to a more efficient allocation of the resource than central planning by government. This is as true for spectrum as it is for steel, water or clothing. Government’s ICT policy admits this, as does the National Development Plan.

However, the policy — in the form of a white paper published in 2016 — calls bizarrely for the limiting of spectrum trading to a draconian extent.

The ICT Advisory Panel was clearly wrong when it asserted that public value does not necessarily result from free trade in radio frequency spectrum.

The new Electronic Communications Amendment Bill has answered this call. High-demand spectrum may not be traded at all, and the communications regulator, Icasa, “may” consider applications for trading in “non-high-demand spectrum”. The bill further empowers Icasa to “withdraw” spectrum from licensees if they have failed “to utilise” the spectrum “in accordance with” those conditions determined by government, or have failed “to use the assigned radio frequency spectrum for a period of one year”.

The root cause of this unfortunate path down which government has gone is the errant belief of its ICT Advisory Panel that “while licensed entities may realise economic value from trading, the trading of a public resource does not necessarily result in public value”. This is a fallacy that has become deeply entrenched in modern economic discourse, but which was supposed to have died with the end of the Cold War in 1990 when central planning was shown to be vastly inferior to free enterprise.

It is thought that the contribution, or “fair share”, enterprises make to society, is limited to employment and taxes. The rest is profit they make for themselves. It is not readily realised that when companies profit — especially when they make massive profits — they provide something to consumers (the public) that consumers value.

For example, the Coca-Cola Company employs a lot of people and pays a lot of taxes to government, yes, but the real contribution this company makes to society is that it puts a smile on billions of faces every day by providing a much-desired refreshment. In exchange for this unquantifiable value Coca-Cola is providing to the people of the world, it makes boatloads of money. And the money Coca-Cola makes can justifiably be seen as the quantification of the value it has created for society.

Let the market decide

The ICT Advisory Panel, then, was clearly wrong when it asserted that public value does not necessarily result from free trade in radio frequency spectrum.

The companies that provide the most value and best service to consumers will make the most money, and will consequently be able to buy more spectrum. If those same companies slip up and their customers are no longer happy, they will lose money, and if they lose a lot of money, they will be forced, by the market, to sell some or most of their spectrum to someone else.

The phantom bogeyman company that just hangs on to assets, come hell or high water, with no regard to its own solvency, does not exist in the real world. The government department that forgets about some of its assets or allocates them inefficiently due to political considerations rather than market forces, however, is very much part and parcel of daily experience.

If the government is truly (and irrationally) concerned about spectrum hoarding, it should simply apply its “use it or lose it” policy more strictly. But prohibiting trade in spectrum or making it unnecessarily difficult, is ill-considered.

Making it more difficult for mobile network providers to do business will not lower data prices or increase access to ICT, even if the government engages in price control. Prices will rise as service providers attempt to compensate for the new regulatory burden, and, where the law empowers government to enforce price controls, the quality of service will decline. Investment in our ICT industry will grind to a halt.

The telecoms industry is the most viable vehicle for substantive socioeconomic transformation in South Africa, a fact often overlooked. With a 98% mobile penetration rate and a virtual 100% penetration rate in poor urban communities, what has been achieved in terms of technological empowerment is one of South Africa’s greatest success stories. South Africa should not undermine this achievement by foolishly banning trade in spectrum.

Martin van Staden is Legal Researcher at the Free Market Foundation and co-author of The Real Digital Divide (2017). He is a Master of Laws student at the University of Pretoria